Category Archives: Health Economics

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As noted in a previous blog post (Changes in the Use of IBD Biologic Therapy), there has been an increased use of biologic therapy early in the course of patient’s with inflammatory bowel disease (IBD). Another retrospective study (H Yu et al AP&T 2018; 47: 364-70 -thanks to Ben Gold for this reference) examines the market share and costs of biologic therapy for IBD using the Truven Marketscan Commercial Claims and Encounters database (2007-2015). This database consists of out-patient and in-patient pharmaceutical claims of approximately 40-50 million privately insured patients each year from patients from all 50 states (U.S.).

Key findings:

Among 415,405 patients with IBD (188,842 with Crohn’s, 195,183 with ulcerative colitis, 31,380 with indeterminate IBD), the proportion using biologics increased over the 9-year period (2007-2015); overall, the market share increase was from 7.1% (2007) to 20.5% (2015).

There were 28,797 pediatric patients with IBD (17,296 with Crohn’s, 9368 with ulcerative colitis, and 2133 with indeterminate colitis). The overall market share in pediatric patients was the highest, increasing from 19.1% to 45.9%.

For all patients with Crohn’s disease (CD) the proportion receiving biologic therapy increased from 21.8% to 43.8%. For patients with ulcerative colitis (UC), the proportion increased from 5.1% to 16.2%.

Per-member per-year (PMPY) costs increased. “The average biologic-taking patient accounted for $25,275 PMPY in 2007 and $36,051 PMPY in 2015.” This was similar in the pediatric population, going from $23,616 PMPY in 2007 to $41,109 PMPY in 2015.

The share of costs of medicines: the costs of biologics as a share of the total increased from 72.9% in 2007 to 85.7% in 2015. 95% of the pharmacy costs in children with IBD are attributed to biologics.

My take: This trend of increasing use of biologics and their associated costs is going to continue due to their effectiveness. While there are direct costs related to these medications, the net cost is unclear as they can prevent hospitalizations and surgeries. In addition, by helping to spare corticosteroids and increasing response rates, biologic therapies improve quality of life, minimize opportunity loss, and optimize long-term health outcomes.

There is a widespread claim that up to 30% of health care dollars are wasted. This claim is similar to other claims of fraud and abuse often extolled in political campaigns. The questions, at least in medicine, is whether this claim is accurate and even if it is, is there a way to improve health care spending.

A recent commentary (L Rosenbaum. NEJM 2017; 377: 2392-7) tackles the “Less-Is-More-Crusade” in medicine. Some of the key points:

This figure has many limitations including inadequate control for severity of illness, regional price differences, and the possibility that variation is due to underuse as well as overuse.

Confounders: difficulty controlling for sicker patients

“Other research suggests that higher spending is actually associated with better outcomes.”

Dr. Rosenbaum describes how MIT economists identified what worked out to be a randomization experiment of health care. These economists examined hospital performance among patients transported by ambulance. Since the ambulance companies had hospital preferences, the “patients [were] essentially randomly assigned to hospitals.” Key finding: “hospitals that spend more during hospitalizations for various acute conditions have lower mortality rates at 1 year post-hospitalization than lower-spending-hospitals, a relationship driven largely by inpatient treatment intensity” (J Pol Econ 2015; 123: 170-214).

Another recent analysis found that Medicare beneficiaries discharged from EDs in “hospitals with the lowest admission rates were 3.4 times as likely to die within a week” as their counterparts at hospitals with the highest admission rates. In addition, “low-admitting EDs tended to serve generally healthier populations.”

Dr. Rosenbaum points out that while many attribute physician greed as a driver of excess testing/overdiagnosis in a fee-for-service model, there are many other explanations. Physician expertise and desire for more certainty are relevant factors.

My take: This commentary provides a lot of nuance. Yes, there is certainly waste but there is a lot of underuse in medicine. Like in areas outside of medicine, “eliminating fraud and abuse” is an oversimplification and will be difficult to achieve.

Humira is the best-selling prescription drug in the world…The price of Humira, an anti-inflammatory drug dispensed in an injectable pen, has risen from about $19,000 a year in 2012, to more than $38,000 today, per patient, after rebates, according to SSR Health, a research firm. That’s an increase of 100 percent…

How much you actually pay out of pocket, and whether you can afford Humira at all, depend on your insurance and eligibility for discounts…

Humira, which accounted for nearly two-thirds of AbbVie’s $25.6 billion in revenue in 2016, was not simple to develop. It is among a new class of drugs known as biologics, which are made from living cells rather than synthetic chemicals…

Looking at the international picture tells its own story about drug costs. A prefilled carton with two syringes costs $2,669 in the United States, compared with $1,362 in Britain, $822 in Switzerland and $552 in South Africa…

An analysis by the Institute for Clinical and Economic Review found that Humira’s list price would need to be discounted by at least 55 percent to be cost effective for rheumatoid arthritis, its originally approved use.

Dr. Steven D. Pearson, the founder of the institute, which provides cost benefit data to health plans, said competing drugs were overpriced as well.

“Even in a space like this, where there is a lot of competition, we don’t see the prices coming down,” he said. “That speaks to the fact that it doesn’t often function like a free market usually would.”..

AbbVie joined a few of its rivals in saying it would limit price increases to single digits this year, and so only raised Humira by another 9.7 percent this month, roughly four and a half times the inflation rate. For the drug industry, that counts as generosity.

My take: Humira is a very important and effective medication, particularly for inflammatory bowel disease and rheumatoid arthritis. I infer from this article which compares the Humira pricing strategy to that used by Martin Shkreli that if U.S. consumers are to have more affordable pharmaceuticals, government intervention will be needed. AbbVie, like many other pharmaceutical companies, will continue to aggressively price Humira; after all, 8 billion in profits is not as good as 10 billion.

“Both Congress and the Food and Drug Administration (FDA) have sought to accelerate the “availability of new drugs by allowing sponsors to wait to resolve many questions about safety and benefit until after their drugs receive marketing approval.”

However, this commentary points out that many times these studies are never completed. The authors examined these studies since 2009. Key finding:

“After 5 to 6 years, 20% of postapproval studies had not been started, 25% were delayed or ongoing, and 54% had been completed.”

The authors note ‘the slow irregular pace of postapproval studies contrasts starkly with the short, rigid deadlines and other shortcuts used to speed marketing approval.” They suggest that the FDA impose fines and establish shorter deadlines. They indicate that the current administrations stated view that the FDA is ‘slow and burdensome’ could necessitate even more reliance on postapproval studies by loosening the evidence for new medication approvals.

In the same issue, the FDA responds that there have been improvements and that since 2015, “88% of postmarketing requirements overall…were progressing according to their original schedules.”

My take: More rapid approvals will inevitably lead to more medications with unrecognized safety signals. These postapproval studies are crucial in identifying infrequent but important adverse effects.

A recent study (JC Robinson et al. NEJM 2017; 377: 658-65) examined the topic of “reference pricing” and how this could be used to lower costs of medication usage.

“Under reference pricing, the insurer or employer establishes a maximum contribution it will make toward the price of a drug or procedure, and the patient pays the remainder.”

In this study, the authors examined 1302 drugs and more than 1.1 million prescriptions (2010-2014). Specifically, the authors compared RETA Trust, a national association of 55 Catholic organizations, which implemented reference pricing and compared costs with a labor union that maintained a drug formulary with copayments similar to RETA Trust but did not implement reference pricing. Key findings:

“Implementation of reference pricing was associated with a higher percentage of prescriptions that were filled for the lowest-priced reference drug within its therapeutic class” (increase in 7%) along with a lower average price paid per prescription (-13.9%) than the comparison group.

Reference pricing was associated with increase in copayment by patients (5.2%)

Reference pricing was associated with reduced spending for employers by $1.34 million and increase in copays for employees by $0.12 million than in the comparison group.

Reference pricing has been associated with decreases of 10-12% in medication costs in European nations, as well.

The authors conclude: “Reference pricing may be one instrument for influencing drug choices by patients…pharmaceutical manufacturers who wish to charge premium prices may need to supply evidence of commensurately premium performance.”

My take: Although in concept reference pricing makes sense, I do worry that patients may be pushed towards less effective medications as not all medications in the same class are equally-effective.

Every time you hear the Trump administration or Congress fight about rising Affordable Care Act premiums, or what will happen to people with pre-existing conditions, just remember — we’re talking about issues that affect 7 percent of the population. That’s how many people are in the individual health insurance market, or the “non-group” market…

But when you hear about those sky-high rate hikes because of “Obamacare,” chances are, they’re not your sky-high rate hikes — unless you happen to be in that market…

The spending limits that have been proposed for Medicaid really do matter, and they affect a larger group — 20 percent of the population.